ABSTRACT
The analysis of economic growth has three purposes: (a) the measurement of the growth of various aggregates of the economy; (b) the identification and measurement of its determinants or sources; and (c) the prediction of future growth by help of growth models. Weare interested in answering questions such as: What determines economic growth? Which factors make the most important contributions to growth, the factors of production or technical change? How can we predict economic growth? We have already seen in Chapter 1 how growth is measured, and will turn our attention now to models of growth. At first we discuss simple production function models, which allow us to analyze growth in terms of factor contributions and technical change under the name of growth accounting. In the next section we examine full-fledged macro models, which endogenize the accumulation of capital. Two members of this family are introduced, the Harrod-Domar model with fixed coefficients and the neoclassical (Solow) model, which allows for substitution between capital and labour. A short review of modern growth theory, often referred to as endogenous growth, concludes the theory, which is being applied in the last section to examine whether the international long-run experience with economic growth supports the hypothesis of convergence of income levels.
